What happened
Shares of Nordstrom (JWN -1.35%) were down 19.4% as of 11:02 a.m. ET on Wednesday after the fashion retailer reported earnings results for the second quarter.
The company reported its sixth consecutive quarter of double-digit sales growth but issued disappointing guidance for the near term. The post-earnings drop puts the stock's year-to-date loss at 17% at the time of writing.
So what
On the surface, Nordstrom's results were decent. Sales increased 12% year over year, while earnings per share improved 57%. CEO Erik Nordstrom said that customer demand decelerated "significantly" toward the end of the quarter, which impacted sales at Nordstrom Rack.
Leading retailers, including Walmart, are currently trying to reduce inventory levels amid declining demand. Nordstrom faces the same problem. Management said it will take actions to reduce inventory and expense levels while executing to improve Rack's profitability, including investing in the supply chain and better inventory flow.
Now what
Management now expects sales growth to be a few points lower than the previous outlook. For 2022, revenue growth should be between 5% and 7%, versus the prior outlook of 6% to 8%, but the operating margin is expected to take a bigger hit, coming in between 4.5% and 4.9%, compared with the previous outlook for about 6%.
The stock is selling at its lowest price-to-sales ratio in the past decade. At a sales multiple of just 0.2, Nordstrom looks like a bargain. Still, the company faces an uphill battle in trying to expand its digital business against competitors, most notably Amazon's efforts to grab market share in apparel.
